M1 Finance Review: How It Relates to Competing Investing Apps

M1 Finance Review: How It Relates to Competing Investing Apps

If you’re looking for a brokerage company whose main aim is to simplify your investment journey, then M1 Finance is what you’re looking for. Such companies combine hands-on investing and robo investing, providing investors with the opportunity of automating their portfolios. The good thing about the process is they will still be able to choose some of the investments they want.

Investments are one of the most important parts of a person’s financial future. However, getting the cash that will be set aside for investments is usually not easy to come by. Most people don’t know how to manage their money, how it can be invested and the right platforms to use.

First time investors are lucky because robo advisors target to help them to begin their investment journey the right way by helping them to manage their accounts. Investors with more experience can also use robo investors especially if they prefer have a more hands-off existence to their investments.

Different platforms such as M1 Finance put together hands-off investing and robo investing, providing investors the ability of automating their portfolios and still be able to choose the kind of investments they want.

Is there more information on M1 Finance that you need to know about?

What is M1 Finance?

M1 Finance is a cost-efficient online investment platform, that provides users with both self-directed and robo advisor investment options. This is the perfect option for someone who doesn’t want to use a robo advisor but would still like to be able to invest in fractional shares or select their personal stocks. The app doesn’t require an account management fee, there’s no minimum amount for opening an account and the banking products provided are insured by the FDIC to at least $250,000.

M1 Finance is partners with both the Securities Investor Protection Corporation (SIPS) and the Financial Industry Regulatory Authority (FINRA). It has won several awards the services it provides, and was featured in publications like Business Insider, The Wall Street Journal and TechCrunch.

The app has an average rating of 4.5 stars from Apple and Android customers. Although a large number of customers don’t have any issues with the company, app and investments, there were still some complaints such as an unresponsive customer service, poor usability (login problems, bugs) and hidden fees.

Related: What is Micro Investing and Which Apps are the Best?

Pros and Cons of M1 Finance

M1 Finance same as other investing platforms has several advantages and disadvantages. Before opening an account with them, ensure that you’ve thoroughly weighed all the pros and cons against apps such as Wealthfront or Robinhood.

Pros

  • No commission, management or trading fees
  • Opening an account is completely free
  • Offers banking and investing options
  • You’ll be able to invest in fractional shares
  • There’s an option for paid accounts, M1 Plus, where more choices and services are provided

Cons

  • There’s no online customer support
  • No tax-loss harvesting
  • Accounts that don’t actively trade after 90 days and are worth less than $20 will be charged a fee
  • Won’t be able to purchase mutual funds, just stocks and ETFs
  • Won’t be able to consolidate other accounts (for instance 401 (k)s sponsored by employers)

Related: Robinhood App Review: Pros and Cons of The Free Trading App

How Does M1 Finance Operate?

Before opening your M1 Finance account, ensure that you understand the type of services they provide, the information you’re required to give and how your investment account is going to be funded.

Getting Started

Its not difficult to open an account with M1 Finance. You can simply do so by visiting their website, then use your email address to create a profile and set a password.

You’ll then be able to see dashboard on your account that requires more of your personal info such as your income, home address and additional assets (in accordance to the SEC). You can proceed to select the investments you prefer including your investing goals and risk tolerance. After that you can link the bank account that you normally use for withdrawals and authorized deposits.

Opening a regular account with M1 Finance is completely free, and you won’t be required to deposit some money immediately after you’ve completed the process. You’ll also be given enough time to go through the app and select the kind of investment portfolio you want before you begin investing.

The premium service account known as M1 Plus charges $125 per year. However, the company currently has a promo that allows new M1 Plus members to pay $25 only for their first year.

Investing

After joining M1 Finance, you’ll be able to invest in Exchange-Trade Funds (EFTs), stocks as well as partial company shares. Apart from IRAs and individual taxable brokerage account, you’ll also be able to create a joint account with your partner or relative as well as create an M1 Trust account.

However, you won’t be allowed to invest in mutual funds and if you have an M1 Finance account, you won’t be able to consolidate investments from elsewhere. For instance, if your account is a retirement plan sponsored by your employee (similar to a 401(k)), you cannot include it in your regular M1 Investment portfolio. You’ll have to manage each of the accounts individually.

Related: How to Start Your Investment Journey with $100

Pies

M1 Finance’s basis on its investing platform is what the company refers to as “Pies”. Pie charts are used to are used to represent all investments you chose, and every “slice” represents the percentage or weight of your investment in your complete investment. When you fund the pies, the cash will be distributed according to how you set the percentages.

For instance, if you set Amazon stocks worth 50% on your investment pie, you’ll need to deposit $100, where $50 will be utilized by the Amazon slice. Since you have full control over every slice, you can adjust the percentages whenever you want.

After signing up for your M1 Finance account, they’ll recommend a pie that you can use to guide you on risk tolerance and preferences, although you can choose not to use it. You can opt to come up with a customized pie, refer to a different expert-referred one, or combine the two so that you have the ideal portfolio. You’ll also be able to remove or add investments at any time.

Automation makes it easy for users to invest in their pies. This can be performed by setting automatic transfers from the bank account you linked to the profile, and also set a schedule that you’re comfortable for you (for example, monthly, weekly, daily). When all this is complete, M1 Finance’s robo investing feature will take care of the rest, including realigning and rebalancing the percentages on your portfolio.

The company applies dynamic rebalancing, dividing the cash you deposited to automatically rebalance itself, relieving you from having to calculate the allocation of money each time you make a deposit.

Withdrawals and Taxes

M1 Finance goes against tax-loss harvesting. This is a strategy that enables users to make minimal capital interest taxes they are charged on every investment returns after they’ve sold particular securities without gaining anything. Although most robor advisors adhere to this strategy, M1 Finance utilizes “tax maximization” instead.

Before you can withdraw some cash from your portfolio, you’ll be required to sell a percentage of your investments. Luckily, M1 Finance can handle this for you after you’ve made a request and authorized it. The app’s algorithm will highlight the investments that can be sold according to the targets you set on your portfolio, prioritizing them according to the company site:

  • Lots that can be transformed into short-term gains
  • Lots that are transformed into long-term gains
  • Losses which can be used to payout future gains

Once the sale is complete, the cash will be transferred into the bank account you registered with. The process can be completed in a maximum of 5 days.

Trading Windows

The investing offers for a basic account on M1 Finance can be operated within one trading window. It starts at 10 a.m. EST, but a member of M1 plus is given a few extra hours until the afternoon trading window which begins at 3 p.m. EST.

If you want to utilize both windows, your account has to have a minimum of $25,000, especially if you have an M1 Plus account.

M1 Borrow

Using M1 Borrow means that you’ll be liable for a loan of at least 35% of the amount of money in your portfolio. The loan can be used to take care of things like paying for an expensive wedding or vacations, paying off outstanding debts and catering for any unexpected crises that your emergency fund can’t.

Loans for basic accounts have a 3.5% interest rate while M1 Plus have a 2% interest rate. However, your account needs to have a minimum of $10,000 for you to qualify. This is better deal in comparison to using a credit card or applying for an equity line of credit for a home or car. Of course, all this is determined on how much money you need.

M1 Finance relays all the risks that come with borrowing money using your portfolio:

  • The initial percentage is variable and fluctuates according to the Federal Funds Rate
  • If the value of your portfolio depreciates, you may be advised to sell of a portion of the investments you have so that your loan is covered
  • If you need a loan from M1 Borrow in order to acquire more securities for your portfolio, any future losses added to the portfolio will be overstated

For more information check out margin disclosure statement.

M1 Spend

Apart from investing and lending services, M1 Finance is also known for their digital accounts which are insured by the FDIC and can be integrated to an investment account. The account can also be operated like a traditional checking account, and the added advantage is that they both have similar features: a debit card, direct deposit and money transfers.

You won’t be required to have a minimum balance each month. However, members of the M1 Plus are eligible for a 1% cash back for particular purchases, ATM fees and 1% APY for your account which will be reimbursed at least four times each month. Members with M1 Basic accounts don’t qualify for interest or cash back on those accounts. However, they’ll be given a single ATM reimbursement every month.

Referral Program

Apart from the promotion that’s currently being run on new M1 Plus membership accounts, the company also has a Refer and Earn program that allows members to share a unique referral link with their family and friends.

Each referral earns you $10 for every person that signs up and deposits money into their account via the link. In order to be eligible for the bonus, your family members and friends you referred have to make deposit on their taxable account worth $100 and an IRA of $500 in 30 days prior to signing up. The money also has to be left in the account for at least 30 days.

Who Qualifies for M1 Finance?

M1 Finance provides several cost-effective, free robo advisor features for beginner or passive investors for members who are looking for both hands-on and automation control. The company also provides competitive banking services for members who’d like to have all their financial services at the same place.

However, if a regular trader that prefers investing through mutual funds, and would like to earn an additional advantage in regards to tax-loss harvesting. However, you may need to consider using alternative investment platform.

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